Chapter 2

1. Chapter 2 Careers in Fraud Examination and Financial Forensics

2. Critical Thinking Exercise Why are manhole covers round ?

3. Does Doing the Right Thing Pay-Off? • Baruch Lev, Christine Petrovits and Sresh Radhakrishnan • Proxied this concept by examining corporate philanthropy growth • The researchers found that charitable contributions are significantly associated with future revenue • Particularly for firms that are highly sensitive to consumer perception • Overall, corporate philanthropy, under certain circumstances, furthers firms' economic objectives.

4. Background • Increased legal and regulatory requirements • Increased demand for entry-level and seasoned practitioners • Growing demand for forensic and litigation advisory services • Unprecedented opportunity in fraud examination and financial forensics fields

5. Becoming a Professional • Competency • Proficiency • Specialized Training • Organization Specific • Task Specific

6. Places Where Fraud Examiners & Financial Forensic Specialists Work

7. Places Where Fraud Examiners & Financial Forensic Specialists Work • Professional Services Firms • Public and Private Companies • Regulatory Agencies • Government and Non-profits • Law Enforcement Agencies • Law Firms

8. Related Professions • Law • Psychology • Sociology • Criminology • Intelligence • Information Systems and Computer Forensics • Other Forensic Sciences

9. A Fraudster’s Perspective • Window Dressing Board of Directors • Lack of Independent and Qualified Audit Committee Members • Lack of Properly Trained Auditors • Lack of Resources Devoted to White Collar Crime

10. Guide to Managing the Business Risk of Fraud 1. A written policy that outlines the fraud risk management program 2. Risk assessment of the exposure of the organization to potential schemes 3. Prevention techniques 4. Detection techniques: • in place in case preventative measures fail • in place to address unmitigated risks • in place to address concerns over collusion and management override 5. A reporting process

11. Business Administration, Management and Corporate Governance • Board of Directors • Audit Committee • Senior/Executive Management • Internal Audit • External (Independent) Audit • Regulators and Governing Bodies

12. Board of Directors • Primary responsibility is to protect shareholder interest • Board of Directors must: • Safeguard assets and invested capital • Review and approve important management decisions • Asses managerial performance • Allocate rewards that encourages shareholder value creation

13. Audit Committee • Primary responsibility is to monitor the financial reporting and auditing processes • Addresses risk of collusion and management override of internal controls • Audit committee must assure: • Efficiency and effectiveness of operations • Reliability of financial reporting • Compliance with applicable laws and regulations

14. Senior/Executive Management • Responsible for the quality, integrity, and reliability of the financial reporting process • To discharge financial reporting responsibility management should: • Identify circumstances, conditions, and factors that can lead to fraud • Assess and manage the risk of fraud associated with the identified circumstances, conditions, and factors • Design and implement an adequate and effective internal control process for prevention and detection of fraud

15. Internal Audit • Can be tasked to help ensure reliable reporting process of company • Assess high-risk aspects of the internal control environment and financial reporting process

16. External (Independent) Audit • Evolved from detection of fraud to expressing opinion on the fair presentation of financial statements • SAS No. 99 Consideration of Fraud in a Financial Statement Audit

17. Regulators and Governing Bodies • Regulations: • Inspire investor confidence • Protect investors • Governing Bodies • Must create environment where risk of fraud is mitigated to below materiality threshold

18. Organizations and Their Related Certifications • Association of Certified Fraud Examiners (ACFE) • Certified Fraud Examiner (CFE) • American Institute of Certified Public Accountants (AICPA) • Accredited in Business Valuation (ABV) • Certified Information Technology Professional (CITP) • Certified in Financial Forensics (CFF) • Forensic CPA Society (FCPAS) • Forensic Certified Public Accountant (FCPA) • Information Systems Audit and Control Association (ISACA) • Certified Information Systems Analyst (CISA) • Certified Information System Manager (CISM) • Certified in the Governance of Enterprise IT (CGEIT)

19. Organizations and Their Related Certifications • Institute of Internal Auditors • Certified Internal Auditor (CIA) • National Association of Certified Valuation Analysts (NACVA) • Certified Forensic Financial Analyst (CFFA) • Accredited Valuation Analyst (AVA) • Certified in Fraud Deterrence (CFD) • Certified Valuation Analyst (CVA) • Society of Financial Examiners (SOFE) • Accredited Financial Examiner • Certified Financial Examiner • Automated Examiner Specialist

20. International Forensic Accounting and Fraud Examination • Chartered Accountant (CA) • Equivalent to CPA around the globe • World’s first professional body of accountants • Established in 1854

21. Prerequisite Knowledge and Skills • Basic Accounting Concepts • Basic Auditing Concepts • Basic Finance and Economics • Basic Law Concepts • General Business Communications Skills and Business Ethics • Basic Computer Skills

22. The Role of Research in a Profession

23. ACFE’s Bi-annual “Report to the Nation” • Covers such topics as: • Is the incidence of fraud increasing or decreasing? • What types of fraud are being committed? • What is the cost of fraud? • How is fraud committed? • How is fraud detected? • What are the victim profiles? • What are the perpetrator profiles?

24. The Institute for Fraud Prevention • Founded by the ACFE and AICPA • Voluntary association of organizations and researchers • Focus on research and education • www.theIFP.org